Two thirds of consumers unaware of upcoming overdraft changes

Two thirds of consumers unaware of upcoming overdraft changes

Millions of people could be sleepwalking into paying over the odds in overdraft fees.

Emma Lunn
Wed, 02/12/2020 – 10:29

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The majority (66%) of current account holders are unaware of FCA changes to overdraft fees, according to Compare the Market.

A study by the price comparison site found that two-thirds of current account customers don’t know about new rules introduced by the Financial Conduct Authority (FCA) that aim to make the costs of overdrafts clearer and easier to compare.

Four in 10 (40%) current account holders told Compare the Market they had used their overdraft in the past year. However, more than two-fifths (42%) of the survey’s respondents didn’t know what their provider’s current overdraft fees were. 

New overdraft rules

From 6 April 2020, new FCA rules mean banks must charge a simple annual interest for overdrafts, without additional fees and charges.

Fixed daily or monthly charges, and fees for having an overdraft facility, will be banned in a move to make overdrafts simpler, fairer, easier to manage and compare.

The past few weeks have seen a number of banks and building societies announce their new overdraft rates.

Lloyds, Santander, TSB, Nationwide, Natwest, First Direct and HSBC are all set to bring in a new overdraft rate of 39.9%. Barclays will charge 35%.

So far, only Lloyds and challenger banks Starling and Monzo have announced a different percentage which will be tied to customer credit scores.

Lucrative revenue stream for banks

Compare the Market found that more than one in 10 (13%) account holders aged between 18 and 24 say they are ‘pretty much always’ in their overdraft, with the average amount owed £448.

It says this equates to more than 400,000 young people nationwide who are continually in their overdraft, each of whom will pay more than £170 in interest a year on this debt if they pay an overdraft rate of 39.9%.

John Crossley, head of money at Compare the Market, says: “We are supportive of the FCA’s view that problems in the overdraft market need to be addressed and it is encouraging that steps to protect customers have been taken.

“However, consumers may be wondering why a lot of high street banks have adopted the 39.9% interest rate – a figure which is almost double the APR of a typical credit card. That many major high street banks have adopted an APR which is even higher than the rate some challenger banks offer to their highest risk customers could suggest that some providers still view overdrafts as a lucrative source of revenue. If you are unhappy with the overdraft fees your bank is charging it is worth finding a more competitive provider or considering a cheaper alternative if you need to take out credit.”

 

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N26 to close all UK accounts in April

N26 to close all UK accounts in April

German digital bank N26 will stop operating in the UK due to Brexit

Emma Lunn
Wed, 02/12/2020 – 09:38

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Brits are no longer able to open new accounts with N26 and all UK-based accounts will be shut down on 15 April 2020.

The bank says the timings and framework outlined in the EU Withdrawal Agreement mean that the company will, in due course, be unable to operate in the UK with its European banking licence.

What should N26 customers do?

The bank’s UK customers are advised to withdraw any money in their account (including “Spaces”) or transfer it to an alternative bank account ahead of the account closure date. N26 Mastercards will be automatically deactivated when accounts are closed.

Anyone with a negative balance is asked to top up their account before 15 April.

Accountholders with automated transactions on their account (such as direct debits or salary payments), or who have stored their card details on online shopping sites, PayPal or an e-wallet, have been advised to make alternative arrangements with another bank ahead of the account closure date.

If anyone tries to make a payment into a N26 account after 15 April, it will bounce and be returned to the sender’s account.

Customers won’t be able to access historic account information after 15 April, so are advised to download their N26 data before their account is closed.

Customers with paid-for N26 Metal or N26 You accounts will cease to have access to the benefits, including Loungekey and travel insurance, offered by these accounts after 15 April. However, the travel insurance will continue to be valid for journeys that begin before 15 April.

N26 customers wanting to switch to another bank account should be aware the bank is not part of the Current Account Switch Service.

Why is N26 closing UK accounts?

N26 has been offering current accounts to UK customers since December 2018 in an attempt to take on app-only banks Starling and Monzo.

But it won’t be able to operate in the UK under its European banking licence when the Brexit transition period ends in December 2020.

Theoretically, the bank could apply for a British banking licence, but this would be expensive and time-consuming.

Thomas Grosse, chief banking officer at N26, says: “While we fully respect the decision that has been taken, it means that N26 will in due course be unable to serve our customers in the UK and will have to leave the market. Customers with accounts in other markets will not be affected.

“Although we will be leaving the UK, we will continue our mission to radically transform the global banking industry through innovation and the power of technology and design to build a bank the world loves to use. This means growing within the European Union, where we recently crossed the 5 million customer mark, building our presence in the US, one of the most attractive global banking markets, and expanding into new countries.”

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